Bankruptcy is not a single remedy. Chapter 7 and Chapter 13 both operate under federal law, but they solve financial problems in different ways. One focuses on a relatively fast discharge and possible liquidation of nonexempt property. The other reorganizes debts through a multiyear payment plan.
The choice affects property, mortgage arrears, monthly cash flow, co-signers and a non-filing spouse, legal protection, and the time required to reach a discharge. A chapter that looks more favorable on paper can fail when it does not match the household’s actual income or long-term goals.
Key Takeaways
- Chapter 7 prioritizes a faster discharge: Qualifying unsecured debts may be discharged within several months, but a trustee can administer nonexempt property.
- Chapter 13 prioritizes reorganization: The debtor generally keeps property while making court-approved payments for three to five years.
- Income is only part of eligibility: Exemptions, debt limits, secured loans, prior filings, tax returns, and the types of debt also matter.
- The automatic stay applies in both chapters: It usually stops most collection activity after filing, subject to statutory exceptions and court orders.
- Completion risk is different: Chapter 7 is shorter, while Chapter 13 requires the household to maintain a workable plan through changing circumstances.
What Chapter 7 and Chapter 13 Have in Common
Both chapters begin by filing a petition with the federal bankruptcy court. Individual filers generally must complete approved credit counseling within 180 days before filing, subject to narrow exceptions. They must disclose assets, debts, income, expenses, contracts, recent financial transactions, lawsuits, and other required information.
Before changing ownership, repaying relatives, or using new credit, review what not to do before filing bankruptcy.
Filing usually triggers the automatic stay. The stay generally stops collection calls, most lawsuits, wage garnishments, foreclosure activity, and repossession efforts. It is not absolute. Some actions are excluded, a secured creditor may ask the court for relief from the stay, and protection can be limited after recent dismissed bankruptcy cases.
Most individual debtors also attend a meeting of creditors under Section 341. The trustee asks questions under oath about the petition, schedules, property, income, and transactions. A judge does not attend. The official notice controls the format; many districts use video meetings, while telephone or in-person arrangements may apply in particular cases.
Neither chapter automatically erases every obligation. Child support, alimony, many tax debts, most qualifying student loans without an undue-hardship ruling, criminal restitution, and several debts involving fraud or personal injury may survive. The distinction is covered in more detail in what debts can and cannot be discharged in bankruptcy.
Chapter 7 Bankruptcy: Liquidation and a Faster Discharge
Chapter 7 is often called liquidation bankruptcy because the case trustee can sell nonexempt property and distribute the proceeds to creditors. In practice, many consumer cases are no-asset cases because exemptions protect all property available to the trustee.
Exemptions may protect some or all equity in a home, vehicle, household goods, retirement accounts, tools, and other property. The available exemptions depend on state law, federal law, residency history, ownership, value, and liens. A filer should not assume that ordinary household property is automatically safe or that valuable property will necessarily be lost.
Chapter 7 commonly discharges ordinary credit card debt, medical bills, unsecured personal loans, collection accounts, lease deficiencies, and other qualifying unsecured debts. A straightforward consumer discharge often occurs within several months, although asset administration or litigation can keep the case open longer.
Who Must Complete the Means Test?
The full income calculation is explained in the Chapter 7 bankruptcy means test.
Most individuals filing Chapter 7 with primarily consumer debts must complete the means-test forms. The first stage compares a six-month income average with the applicable median income for the state and household size. Above-median debtors may still qualify after deducting allowed expenses and obligations.
Passing the means test does not guarantee Chapter 7 relief. The trustee, U.S. Trustee, creditor, or court may raise other issues involving bad faith, property, transfers, prior cases, or the totality of the financial circumstances.
What Happens to Secured Property?
A discharge removes personal liability for qualifying debt, but it generally does not erase a valid mortgage or vehicle lien. To keep financed property, the debtor usually must protect the equity with exemptions and continue satisfying the secured creditor’s rights.
A vehicle loan may involve reaffirmation, redemption, surrender, or another treatment permitted by the Bankruptcy Code and local law. A home mortgage is often handled differently: the borrower may continue paying without reaffirming personal liability, but the lien remains and foreclosure is still possible after default.
Businesses and Chapter 7
Individuals, corporations, partnerships, and other qualifying entities can file Chapter 7. A critical difference is that a corporation or partnership does not receive a Chapter 7 discharge. Its case generally liquidates assets and winds down the entity. An individual sole proprietor may receive a discharge because the business and owner are not separate legal debtors.
Chapter 7 Costs
A complete comparison of filing fees, course costs, attorney charges, and Chapter 13 trustee percentages appears in how much bankruptcy costs.
As of July 2026, the Chapter 7 court filing fee is $338, separate from attorney fees and required course costs. Individual debtors can request installment payments. The court may waive the Chapter 7 filing fee when income is below 150% of the official poverty guideline and the debtor cannot pay in installments.
Chapter 13 Bankruptcy: A Court-Supervised Repayment Plan
Chapter 13 is available to individuals with regular income, including self-employed people and sole proprietors. Instead of turning over nonexempt property for liquidation, the debtor proposes a plan to make payments through a Chapter 13 trustee.
The plan usually lasts three years when current monthly income is below the applicable state median, unless the court approves a longer period for cause. Above-median debtors generally propose a five-year plan. A plan cannot run longer than five years.
If the payment later becomes unaffordable, the options are covered in what happens after a missed Chapter 13 payment.
The trustee distributes plan payments according to bankruptcy priority rules and the confirmed plan. Some creditors receive full payment, some receive only part of their claims, and some long-term secured obligations continue beyond the case.
Current Chapter 13 Debt Limits
For cases filed in July 2026, Chapter 13 is generally limited to individuals with less than $526,700 in noncontingent, liquidated unsecured debt and less than $1,580,125 in noncontingent, liquidated secured debt. These statutory amounts are adjusted periodically.
A filer must also have regular income sufficient to fund a feasible plan, complete pre-filing credit counseling, and satisfy tax-return requirements. Chapter 13 may be dismissed or converted when required tax filings, plan payments, ongoing support, or other obligations are not maintained.
Using Chapter 13 to Catch Up on a Home
Chapter 13 is frequently used to stop a pending foreclosure and cure mortgage arrears over the plan period. The debtor must generally continue making the regular mortgage payments that come due after filing while also funding the plan.
The same principle applies to other secured property. Chapter 13 may reschedule certain secured debts, but it does not make an unaffordable home or vehicle permanently affordable. A plan should leave room for repairs, insurance, taxes, medical costs, and ordinary income fluctuations.
How Often Are Chapter 13 Plans Completed?
Chapter 13 completion is a real risk, but it should be stated precisely. Among consumer Chapter 13 cases closed by dismissal or plan completion during 2025, 45% ended with a discharge after plan completion, while the remaining cases in that dataset were dismissed. The rate varied substantially by district.
That statistic does not predict the outcome of a particular case. Stable income, realistic plan payments, attorney representation, mortgage affordability, family obligations, and unexpected events can all affect completion.
Chapter 13 Costs
The current Chapter 13 court filing fee is $313. Attorney compensation, trustee percentages, and other costs vary by district and case. Some attorney fees may be paid through the plan under local procedures.
Chapter 7 vs. Chapter 13: Side-by-Side Comparison
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Basic structure | Liquidation of assets not protected by bankruptcy exemptions and discharge of qualifying debts | Court-supervised repayment plan |
| Typical duration | Discharge often within several months | Three to five years before a standard discharge |
| Property | Trustee may administer nonexempt property | Debtor generally keeps property but must satisfy plan and confirmation rules |
| Unsecured debt | Qualifying balances are often discharged without repayment | Creditors may receive partial or full payment depending on the plan |
| Mortgage arrears | No multiyear mechanism to cure arrears while keeping the home | Arrears may be cured through the plan while ongoing payments continue |
| Income requirement | Means test applies to most individual consumer cases | Regular income sufficient to fund a feasible plan |
| Debt limits | No general minimum or maximum debt amount, although other eligibility rules apply | Current secured and unsecured limits apply |
| Court filing fee | $338 | $313 |
| Credit-reporting period | Can remain for up to 10 years from filing | Commonly removed after seven years, although bankruptcy reporting is legally permitted for up to 10 years |
| Main completion risk | Asset, disclosure, eligibility, or dischargeability problems | Failure to maintain plan and post-filing payments |
How the Chapters Treat Debts Differently
Both chapters can discharge many ordinary unsecured debts, but Chapter 13 can provide treatment that Chapter 7 does not.
A completed Chapter 13 discharge can be somewhat broader. Examples identified by the U.S. Courts include certain debts for willful and malicious injury to property, certain debts incurred to pay nondischargeable taxes, and certain divorce or separation property-settlement obligations.
Chapter 13 also gives debtors time to pay priority debts that would survive Chapter 7, including some tax obligations and domestic support arrears. This does not make those debts disappear. It places them inside a structured plan.
Long-term obligations such as a home mortgage, domestic support, many taxes, most qualifying student loans, DUI personal-injury debts, criminal restitution, and other statutory exceptions may remain after either chapter.
Which Chapter May Fit Your Situation?
Chapter 7 May Fit Better When
- Most debt is unsecured and dischargeable.
- Income and the means-test analysis support Chapter 7.
- There is little nonexempt property at risk.
- No feasible way exists to fund a Chapter 13 plan.
- The household needs a faster legal endpoint.
- Mortgage or vehicle arrears do not need a multiyear cure.
Chapter 13 May Fit Better When
- You need time to cure mortgage or vehicle arrears.
- Chapter 7 would expose valuable nonexempt property.
- Income is regular enough to support a realistic plan.
- Priority taxes or support arrears need structured repayment.
- A co-debtor on a consumer obligation needs temporary protection.
- The limited broader Chapter 13 discharge matters to the debt mix.
A chapter should be selected from a complete debt and property analysis, not from a single online calculator. The article on when to talk to a bankruptcy attorney explains which records and questions make an initial consultation more useful.
Alternatives to Compare Before Filing
Bankruptcy may be appropriate when unsecured debt cannot be repaid within a realistic period or legal collection is threatening basic stability. It is still worth comparing the likely bankruptcy result with available alternatives.
Those alternatives may include:
- A creditor hardship program
- A nonprofit debt management plan
- Direct settlement of a limited number of accounts
- Mortgage loss mitigation or loan modification
- Medical financial assistance or insurance appeals
- Sale of nonessential property on your own timeline
The comparison should include every creditor, not only the easiest account to settle. Bankruptcy and debt settlement have different legal protection, cash requirements, tax risks, and failure points.
A consultation does not commit you to filing. It can show that bankruptcy should be filed promptly, delayed for a legitimate reason, or avoided because another strategy produces a better outcome.
Summary
Chapter 7 offers a comparatively fast discharge for qualifying debts but can expose nonexempt property. Chapter 13 allows an individual with regular income to keep property and reorganize debts through a three-to-five-year plan, including a possible cure of mortgage arrears.
The decision turns on more than income. Review exemptions, equity, secured loans, debt limits, dischargeability, prior filings, taxes, support obligations, and whether the household can maintain the proposed payments. A plan that cannot survive an ordinary emergency is not a durable solution.
Frequently Asked Questions (FAQs)
Which is better for credit, Chapter 7 or Chapter 13?
Both are serious negative events. Chapter 7 can remain on a credit report for up to 10 years. Chapter 13 is commonly removed after seven years, although federal law permits bankruptcy reporting for up to 10 years. The better choice is the chapter that creates a sustainable financial recovery.
Can I keep my house or car in bankruptcy?
Possibly. In Chapter 7, exemptions must protect the equity and secured-creditor rights must be addressed. Chapter 13 generally allows the debtor to keep property while curing arrears and maintaining required payments through a feasible plan.
Do I have to repay all debts in Chapter 13?
No. Priority debts and certain secured obligations may require full or specified treatment, while general unsecured creditors may receive only part of their claims. The plan must satisfy projected disposable-income and liquidation-value requirements.
What are the current Chapter 13 debt limits?
For cases filed in July 2026, an individual generally must have less than $526,700 in noncontingent, liquidated unsecured debt and less than $1,580,125 in noncontingent, liquidated secured debt.
Can I convert Chapter 13 to Chapter 7?
Often, but the debtor must address Chapter 7 eligibility, property, and other consequences. A Chapter 13 debtor generally has a right to convert to Chapter 7, while conversion in other directions can involve additional conditions and court review.
Does Chapter 7 discharge a mortgage or car lien?
A Chapter 7 discharge may remove personal liability for qualifying debt, but it generally does not erase a valid lien. The creditor may still foreclose or repossess collateral after default.
Can a business file Chapter 7?
Yes, but a corporation or partnership does not receive a Chapter 7 discharge. The process generally liquidates the entity’s assets. An individual sole proprietor may receive a personal discharge.
Can a Chapter 13 plan be changed if income drops?
A confirmed plan may sometimes be modified, converted, or dismissed. A hardship discharge is available only under narrow conditions. Contact the attorney or trustee promptly rather than waiting until several payments are missed.
Sources
- United States Courts: Chapter 7 Bankruptcy Basics
- United States Courts: Chapter 13 Bankruptcy Basics and Current Debt Limits
- United States Courts: Discharge in Bankruptcy
- United States Courts: 2025 BAPCPA Report and Chapter 13 Completion Data
- U.S. Trustee Program: Means Testing Information
- U.S. Trustee Program: Credit Counseling and Debtor Education
- U.S. Bankruptcy Court: Current Chapter 7 and Chapter 13 Filing Fees
- Consumer Financial Protection Bureau: Bankruptcy Credit-Reporting Periods and Rebuilding
- United States Courts: Bankruptcy Case Records and Credit Reporting
